The Gujarat High Court dismissed the Revenue’s appeal in Principal Commissioner of Income Tax-1 v. Adani Infrastructure Services Pvt. Ltd., leaving undisturbed the deletion of a reported ₹23.77 crore interest disallowance under Section 14A and Rule 8D(2)(ii) for Assessment Year 2009-10. The reported reason was specific to the case: interest income exceeded interest expenditure after set-off, and the lower appellate authorities had found that borrowed funds were passed onward in a back-to-back, interest-bearing transaction.
What the Gujarat High Court decided
In R/Tax Appeal No. 144 of 2016, the Gujarat High Court reportedly dismissed the Revenue’s challenge to the Ahmedabad Income Tax Appellate Tribunal’s decision for AY 2009-10. The Tribunal had sustained the Commissioner of Income Tax (Appeals)’ deletion of a ₹23.77 crore disallowance of interest expenditure. The High Court did not disturb that result, according to LiveLawBiz’s report published on 3 October 2026.
The decision was by a Division Bench of Justice Bhargav D. Karia and Justice Nirzar S. Desai. The accessible report does not separately identify the date on which the court delivered its order, so 3 October 2026 is the report’s publication date, not an established judgment date. Read the LiveLawBiz report.
How the dispute arose
The assessment and disallowance
The Assessing Officer considered the company’s exempt dividend income and partnership-firm profit alongside its interest receipts and interest expenditure. LiveLawBiz reports dividend income of ₹79.20 crore, partnership-firm profit of ₹18.38 lakh, interest income of ₹26.08 crore, and interest expenditure of about ₹25.77 crore. The report says the officer nonetheless calculated a ₹23.77 crore proportionate interest disallowance under Rule 8D(2)(ii). These amounts are reported case figures and have not been independently checked against the assessment record or the judgment.
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The appeals and the competing positions
The company argued that borrowed funds had been passed onward against interest and that there was a direct connection between the interest paid and interest earned. The CIT(A) found, as reported, that the interest on the advance was identical to the interest paid on the borrowing and deleted the disallowance. The Ahmedabad ITAT upheld that finding, describing the borrowing and onward advance as a back-to-back transaction.
The Revenue argued in the High Court that the company used mixed funds and did not maintain separate accounts for borrowed funds and the onward advance. The dispute therefore concerned whether a proportionate interest amount could be disallowed in relation to exempt income despite the reported interest receipts and the concurrent findings about the use of borrowed funds.
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Why Section 14A and Rule 8D(2)(ii) mattered
Section 14A addresses expenditure incurred in relation to income that does not form part of total taxable income. Rule 8D(2)(ii) sets out a method for calculating relevant interest expenditure that is not directly attributable to a particular income or receipt. The case, as reported, was about applying that interest calculation—not about treating the company’s exempt dividend income as taxable.
The High Court reportedly relied on its earlier decision in Nirma Credit & Capital (P.) Ltd. when considering interest income in determining interest expenditure under Rule 8D(2)(ii). It also relied on Shreno Ltd. and the concurrent factual findings of the CIT(A) and ITAT about the onward advance.
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The reported reasoning turned on the figures and findings in this assessment. LiveLawBiz says the court considered the interest income against interest expenditure and found no excess interest expenditure of the kind relevant to the disallowance after set-off. The lower appellate authorities had also found that the borrowed funds were advanced onward in a back-to-back transaction. On those reported facts, the High Court found no error in the Tribunal’s decision to leave the deletion in place.
This should not be read as a general rule that any taxpayer may net any interest income against any interest expense for Section 14A purposes. The outcome is reported as an application of existing Gujarat High Court precedent to this company’s figures and the concurrent factual findings about the borrowing and advance.
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What the ruling does—and does not—establish
- It establishes, as reported, that the Revenue’s appeal was dismissed and the deletion of this ₹23.77 crore disallowance for AY 2009-10 remained undisturbed.
- It does not establish that interest income always cancels interest expenditure under Rule 8D(2)(ii), regardless of the source and use of funds.
- It does not establish that exempt dividend income became taxable; the dispute concerned the calculation and disallowance of interest expenditure connected with exempt income.
- It is fact-dependent: the reported outcome relied on the interest figures and the lower authorities’ finding about the back-to-back advance.
Limits of the available account
The account available here is LiveLawBiz’s secondary report; the linked full-order PDF was not retrievable. The report gives inconsistent names for the recipient of the onward advance: one passage identifies Adani Infrastructure Developers Pvt. Ltd., while its quotation of the High Court refers to Adani Enterprises Limited. The recipient’s identity therefore cannot be treated as settled from the report alone.
LiveLawBiz also reproduces court language about there being no excess interest expenditure after set-off. Because the primary order was unavailable for transcript verification, that wording should be checked against the order before being used as a direct quotation in a filing or other high-stakes legal analysis.
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